Arbitration is a process of dispute resolution in which a neutral third party (called the arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. It is the means by which parties to a dispute get the same settled through the intervention of a third person, but without having recourse to court of law.

The Arbitration is the system of alternative dispute resolution. The objective is to minimize the litigation and decide the matter through Arbitration. The Indian law of Arbitration is governed by Arbitration and conciliation Act, 1996.

A reference to Arbitration may be made without the intervention of a court. It is an established principle of law that wherever there is a clause of Arbitration in any agreement, generally the courts do not have jurisdiction to hear such cases. “Arbitration agreement is a written agreement to submit present or future disputes and differences to Arbitration, whether to one Arbitrator or more Arbitrators named therein or not”.

An Arbitrator is a judge appointed by the consent of the parties. The authority of an appointed Arbitrator cannot be revoked, except with the leave of the court.

The Arbitration and Conciliation Act, 1996 came into force with effect from 22.8.1996. It consolidates and amends the law relating to domestic arbitration, international commercial arbitration and enforcement of foreign arbitral awards.

It applies to the whole of India. It applies to the State of Jammu and Kashmir to the extent of the provisions relating to enforcement of foreign awards, which apply in full, other provisions apply insofar as they relate to international commercial arbitration or conciliation.

The Act is based on the conciliation rules adopted by the United Nations Commission on International Trade (UNCITRAL)

• Arbitration agreement means an agreement by the parties to submit to arbitration all or certain disputes which have arisen or which may arise between them in respect of a defined legal relationship whether contractual or not.
• The parties make an agreement that instead of going to the court, they shall refer the dispute to arbitration.
• The arbitration agreement may be in the form of an arbitration clause in a contract or in the form of a separate agreement. Where an arbitration clause is included in a contract and the contract is avoided due to misrepresentation or fraud, the arbitration clause may still continue to be binding.
• Where, however, there was no contract at all between the parties or contract was void ab initio, the arbitration clause cannot be enforced.
• An arbitration agreement/clause must be in writing. Although no formal document is prescribed, however, it must be clear from the document that the parties had agreed to the settlement of dispute through arbitration.
• Where the arbitration agreement or clause is contained in a document, the parties must sign the document. Besides, the arbitration agreement may be established by-
  1. an exchange of letters, telex, telegram or other means of telecommunication; or
  2. an exchange of statement.

A person of any nationality may be an arbitrator, unless otherwise agreed by the parties. In case of an international commercial arbitration, where the parties belong to different nationalities, the Chief Justice of India may appoint an arbitrator of a nationality other than that of the parties.

The parties are free to agree on the place of arbitration and failing an agreement to do so the place shall be determined by the arbitral tribunal having regard to the circumstances of the case and convenience of the parties.

An arbitration agreement is a contract and thus, any party to such an agreement must have the capacity to contract.

The parties to an arbitration agreement may refer to arbitration, a dispute which has arisen or which may arise between them, in respect of a defined legal relationship, whether contracted or not.

Thus, all matters of civil nature whether they relate to present or future disputes may form the subject matter of reference. The dispute, however, must be the consequence of legal relationship arising out of an obligation, the performance of which is a duty under the law and for its breach a remedy is provided.

The following disputes cannot be referred to arbitration:

• Insolvency proceedings.
• Lunacy proceedings.
• Proceedings for appointment of a guardian to a minor.
• Question of genuineness or otherwise of a will or matter relating to issue of a probate.
• Matters of criminal nature.
• Matters concerning Public Charitable Trusts.
• Disputes arising from and founded on an illegal contract

When the parties have entered into an arbitration agreement, they cannot file a suit in a court of law in respect of any matter covered by the agreement; otherwise the very purpose of arbitration will be frustrated. The court will normally not intervene except where so provided by the Act.

Foreign award – has been defined to mean an award on differences between persons arising out of legal relationships, whether contractual or not and considered as commercial under the law in force in India, and made in pursuance of an agreement in writing for arbitration to be governed either by the New York Convention or by the Geneva Convention, in the territory of a notified foreign state.

• Where a commercial dispute covered by an arbitration agreement to which either of the conventions applies, arises before a judicial authority in India, it shall at the request of a party be referred to arbitration.
• Any foreign award, which is enforceable under this part, shall be binding and may be relied upon by the parties by way of defence, set off or otherwise in any legal proceedings in India.
• The party applying for the enforcement of a foreign award shall, produce the original award or a duly authenticated copy thereof, the original arbitration agreement or a certified copy thereof, and evidence to prove that the award is a foreign award.
• An appeal shall lie against the order of court refusing to refer the parties to arbitration or refusing to enforce a foreign award.